How Solid Is Your Lenders Pre-Approval
This BLOG On How Solid Is Your Lenders Pre-Approval Was Written By Gustan Cho.
How Solid Is Your Lenders Pre-Approval? This is often a key question among not just home buyers but home sellers and realtors. The Pre-Approval Stage is the most important phase of the mortgage process. The number one reason why borrowers go through stress during the mortgage process and the reason for last minute loan denials is due to not being pre-approved correctly or because the loan officer issued a hasty pre-approval without properly doing his or her due diligence.
There are many borrowers who want a pre-approval within minutes of them getting pre-qualified. However, if you want your loan process to go smoothly, then you need to cooperate with your loan officer and make sure that the loan officer has all grounds completed.
Automated Underwriting System
The Automated Underwriting System is a highly technologically advanced mortgage underwriting system that analyzes the following in a matter of couple of minutes. Again, AUS FINDINGS is another way of showing you on how solid your lenders pre-approval is:
- The borrowers income and co-borrowers if applicable
- Borrowers assets which includes checking accounts, savings accounts, and any other asset accounts needed to verify funds for cash to close
- Borrowers liabilities that is reporting on credit report
- Borrowers credit scores and overall credit history which includes the borrowers credit tradelines, age of the tradelines, late payments, charge offs, judgments, tax liens, public records on the credit report, and any other pertinent information
- Within minutes, the AUS will render a decision of approve/eligible, referred/eligible, or referred with caution
- Approve/eligible means you have an automated approval. Refer/eligible means that the automated system cannot render a decision and an underwriter needs to manual underwrite the borrower’s application, and referred/eligible means that the file does not qualify
There are two types of AUS FINDINGS:
- Fannie Mae Desktop Underwriter or DU
- Freddie Mac Loan Prospector or LP
- With the 1003 and the credit report, the loan officer is able to run it through Fannie Mae’s Automated Underwriting System called Desktop Underwriter, commonly referred as DU which is short for Desktop Underwriter
- Same for Freddie Mac’s Loan Prospector, often referred to as LP which is short for Loan Prospector
Accuracy Of Automated Underwriting System Determines On How Solid Your Lenders Pre-Approval Is
Again, AUS, which is the Automated Underwriting System there can be errors and how solid your lenders pre-approval will determine in the AUS not being inputted with any incorrect information. The Automated Underwriting System is a highly intricate sophisticated mortgage computer system and it will just pick up all of the data that the loan officer inputs in the system and the accuracy of the inputted data such as the 1003 and the borrowers credit report is what the system picks up and renders the decision. Here are factors you need to know about the Automated Underwriting System:
- Just because you get an automated approval, the borrower should close as long as they can meet the condition of the AUS but the loan officer needs to make sure on the accuracy of the 1003 and the borrower credit report
- Borrowers need to understand that DU or LP will only go by thedata and information that is listed on the mortgage loan application and the credit items reporting on the credit report. Credit reports can contain errors
- Judgments and tax liens and other public records that are not reporting on the credit report will be discovered by the mortgage lender through a third party public records search during the mortgage underwriting process so make sure you tell that to your loan officer
- All pre-approvals are not pre-approved the right way
- You would want a very picky and thorough mortgage loan originator and a pre-approval should not be rushed
- Some loan officers will just issue a pre-approval without looking at all of the documents provided by the borrower or sometimes many loan officers will not even ask for documents
- A loan officer should carefully review the mortgage loan borrower’s two years tax returns and pay special attention to the borrower’s unreimbursed expenses as well as whether or not the borrower has declining income
- Income tax returns for mortgage borrowers who are self employed or are 1099 income or commission income are averaged for the past two years
- In the event if the tax return of the most c urrent year is lower than the previous year, mortgage underwriters will definitely want to know that and question it and may just use the lower year’s income and not average the two years
- The above holds true as well for overtime income, bonus income, or other income. Two years of these types of income is required to be able to use it and the underwriter needs to believe that it will continue for the next three years
- If there are an ounce of doubt as of the above income, the mortgage loan originator or mortgage processor needs to get a verification of employment before issuing a pre-approval letter
- Many people who go to credit repair can have derogatory items removed and deleted off all the three major credit bureaus. This practice works for collections and charge offs but not public records
- This will work for outstanding collection accounts, late payments, charge off accounts, and even car payments or installment payments and the borrower can get away with it
- ALL PUBLIC RECORDS that are not on the credit report will be discovered by during a third party records search during the mortgage underwriting process
- If you have overdrafts in the past year but do not have overdrafts in the past 60 days, then an astute loan officer will tell you to go to the bank and get him 60 days of bank printouts that is signed, stamped, and dated by the bank teller
- Overdrafts c an be deal killers by many lenders. Bank overdraft fees show up on bank statements
- Bank statement print outs do not show overdraft fees so if you have overdrafts, do not turn in bank statements and turn in bank statement print outs
- Closing costs can be covered either by a sellers concession or by a mortgage lender credit in lieu of a higher interest rate
- Credit disputes should carefully be reviewed by your loan officer.
- Any credit disputes on non-medical collection accounts that the aggregate balance exceeds $1,000 or on any charge off accounts needs to be retracted
- You can have credit disputes on non-medical collection accounts with zero balances or on medical collection accounts
- Retracting credit disputes yields a drop your credit scores
Do You Know How Solid Is Your Lenders Pre-Approval Letter?
Once your loan officer has reviewed your mortgage application as followed can you answer the question on How Solid Is Your Lenders Pre-Approval and that your mortgage loan will not just close but will close on time. The answer to How Solid Is Your Lenders Pre-Approval is right below. Here are the steps in determining on how solid is you lenders pre-approval letter:
- Has reviewed your credit scores been reviewed?
- Has your loan officer thoroughly reviewed your credit report?
- Has your loan officer thoroughly reviewed your income docs?
- Has you loan officer thoroghly reviewed your bankruptcy and foreclosure paperwork if applicable?
- Has you loan officer thorough reviewed your divorce decree if applicable to see if you are obligated to pay and/or receive child support/alimony?
- Has your loan officer ask for other documents and every other potential item a mortgage underwriter may question?
- If the above is YES then the borrower will be deemed as pre-approved and a pre-approval letter should be issued
The pre-approval process should not take long and the time it takes on getting a solid pre-approval letter normally depends on how fast the borrower can get all of the docs to the loan officer. This BLOG on How Solid Is Your Lenders Pre-Approval was written by Gustan Cho Team. There is no reason why once you are issued a pre-approval letter that your mortgage loan should not close. Over 70% of my borrowers are borrowers who either got a last minute mortgage loan denial or are going through a major stressful mortgage process because they were not qualified properly by their original loan officer. If you are going through major stress or just gotten a last minute mortgage loan denial, call us at 262-716-8151 or email us at firstname.lastname@example.org. We are available 7 days a week, evenings, weekends, and holidays.